--- title: "When Must a Bonus Be Paid to Be Deductible? The 180-Day Rule" url: https://www.everstonecpa.com/blog/accrued-bonus-180-day-rule-canada description: "When must an accrued bonus be paid to be deductible? Within 180 days after year-end, or subsection 78(4) moves the deduction. See the checklist." type: guide updated: 2026-10-06 summary: "A corporation can deduct a bonus in the year it is accrued only if the bonus is actually paid within 180 days after the end of that tax year. Miss the deadline and the deduction moves to the year the bonus is finally paid, under subsection 78(4) of the Income Tax Act." faq_count: 6 publisher: EverStone CPA Inc., a Chartered Professional Accountant firm registered with CPA British Columbia and CPA Alberta service_area: British Columbia, Alberta, Ontario and Manitoba language: en-CA contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online --- [Home](https://www.everstonecpa.com/) [Blog](https://www.everstonecpa.com/blog) Accrued Bonus and the 180-Day Rule in Canada Tax # Accruing a bonus at year end: *the 180-day rule* By EverStone CPA · Updated July 2026 · 8 min read **Quick answer:** A corporation can deduct a bonus in the year it is accrued only if the bonus is actually paid within 180 days after the end of that tax year. Miss the deadline and the deduction moves to the year the bonus is finally paid, under subsection 78(4) of the Income Tax Act. **Planning a year-end bonus?** We accrue it, time the payment inside 180 days and run it through payroll, at a fee quoted in writing. [Get My Fixed Quote](https://www.everstonecpa.com/book-online?service=corporate-tax#enquiry-form) **Weighing a bonus against a dividend?** Enter your company’s profit in [our 2026 pay planner](https://www.everstonecpa.com/salary-vs-dividends-calculator): it works out corporate tax, CPP and personal tax at every salary level for 2026 and shows the split that leaves you the most. The deduction is lost if day 181 arrives before the bonus is paid, and the year-end is when that gets planned. [Ask us about it](https://www.everstonecpa.com/book-online). The clock runs from the year end, not from the resolution. ## Key takeaways - A bonus accrued at year end must be **paid within 180 days after the year end** to stay deductible in that year. - The clock runs from the corporation’s **tax year end**, not from the date of the resolution. - Paying late does not destroy the deduction — it moves it to the year of payment. - The rule applies to arm’s length and non-arm’s length employees alike, including owner-managers. - Payroll source deductions and a T4 slip follow the **payment** date, not the accrual date. Accruing a bonus at year end is a long-standing owner-manager [tax planning](https://www.everstonecpa.com/tax-planning-services-canada) tool. The corporation expenses it in the year just ended, cutting that year's taxable income, and pays it the following year. Done properly it is legitimate; done a week late it costs the deduction for a full year. Related: [Cash vs accrual accounting: which basis your business has to use](https://www.everstonecpa.com/blog/cash-vs-accrual-accounting-canada). ## What the rule actually says Subsection 78(4) of the Income Tax Act covers unpaid employee remuneration. Salary, wages or other remuneration still unpaid 180 days after the end of the tax year it was incurred in is deemed not to be an expense of that year and is not deductible then. If paid later, it is deductible in the tax year it is actually paid. If the employee leaves before payment, the bonus also belongs on [the record of employment](https://www.everstonecpa.com/blog/roe-record-of-employment-canada). Pay within 180 days and the deduction stays put; pay later and it moves to the year of payment. The CRA accepts payment on the 180th day as within the limit. If you are asking when do bonuses need to be paid to be deductible in the accrual year, the answer is within 180 days after that year ends. **Note:** the 180 days run from the corporation’s **tax year end**. A June 30 year end means the bonus has to be paid by late December; a December 31 year end means late June. The date is fixed by your year end, so confirm it before you diarise anything. **Planning a year-end bonus?** We prepare the year-end and T2, time the bonus against the 180-day rule and run the payroll on it, with the fee quoted in writing before any work starts. See [our year-end guides](https://www.everstonecpa.com/year-end-hub), or [get a year-end quote](https://www.everstonecpa.com/book-online). [Get My Fixed Quote](https://www.everstonecpa.com/book-online) ## Why owners use an accrued bonus There are three common reasons an owner-manager declares a bonus rather than simply leaving profit in the company: - **Bringing corporate income back under the small business limit.** A bonus is deductible to the corporation, so it reduces active business income that would otherwise be taxed at the general rate. - **Creating RRSP room and CPP contributions.** Salary and bonus are earned income for RRSP purposes; dividends are not. That trade-off is the heart of the [bonus versus dividend decision](https://www.everstonecpa.com/blog/bonus-vs-dividend-year-end-canada). - **Timing personal income.** The bonus is deductible to the company in the year accrued, but it is employment income to the recipient in the year it is *received*. That can shift personal income into a lower-income year. Which of those matters most depends on your marginal rate, your RRSP plans and how much income the corporation is earning. Our [salary versus dividends](https://www.everstonecpa.com/blog/salary-vs-dividends-2026) guide walks through the comparison. Not sure how this applies to you? Every corporation is different. Send an enquiry for a straight answer and a fixed quote. [Send an Enquiry →](https://www.everstonecpa.com/book-online) [See tax services](https://www.everstonecpa.com/tax-services) ## What a properly documented accrual looks like An accrual is only an expense if the corporation actually became liable for it by year end. A number typed into the trial balance after the fact is not a liability. Three things should exist: - **A directors’ resolution or written authorization** declaring the bonus, dated on or before the year end, naming the employee and the amount. - **A recorded liability** in the year-end accounts, usually accrued wages payable, that reconciles to the resolution. - **Evidence of payment** inside the 180-day window, a payroll register, the bank entry, and the source-deduction remittance. Bonuses must also be reasonable. The CRA rarely challenges remuneration paid to an active owner-manager of a Canadian-controlled private corporation, but a bonus paid to a family member has to reflect work genuinely done for the business. ## The payroll side people forget The deduction date and the payroll date are not the same thing. The corporation deducts the bonus in the year of accrual, but the bonus is employment income to the employee in the year it is paid, and payroll obligations follow the payment: - **Source deductions** — income tax, and CPP where applicable — must be withheld when the bonus is paid and remitted on the corporation’s normal [remittance schedule](https://www.everstonecpa.com/blog/payroll-remittances-canada-rp-account) for that period. - **The T4 slip** reports the bonus in the calendar year of payment, which is often the year *after* the corporate deduction. See the [slip filing deadlines](https://www.everstonecpa.com/blog/t4-t4a-t5-slip-filing-deadlines-canada). - **Cash** has to be there. A bonus of any size can create a large withholding remittance in a single month. A common mistake is to accrue the bonus, pay it within 180 days, and then forget to remit the withholding, which turns a clean planning move into a penalty. ## What happens if you miss the deadline Nothing dramatic happens automatically, which is exactly why it gets missed. The corporation must add the unpaid bonus back in computing income for the year of accrual, and claim it in the year of payment. The consequences are cash-flow ones: more corporate tax in the earlier year, possibly instalment interest if the earlier year’s tax was understated, and an amended return if the original one already claimed the deduction. If the bonus was never really going to be paid, a cleaner alternative may be to leave the profit in the corporation and pay a dividend later, or to look at whether the money is already out through a [shareholder loan](https://www.everstonecpa.com/blog/shareholder-loans-canada-taking-money-out-of-corporation). Whether any of this applies to you turns on your year-end, your structure and what else is in the picture — [ask about your own situation](https://www.everstonecpa.com/quick-question) and a CPA replies, usually the same business day. Free either way. ## A simple checklist - Diarise the 180-day date the moment the resolution is signed. - Do not schedule payment in the final week of the window. - Confirm the corporation will have the cash for the bonus *and* the withholding. - Keep the resolution with the year-end file, not loose in a drawer. - Check the bonus against the rest of your [year-end checklist](https://www.everstonecpa.com/blog/year-end-tax-checklist-incorporated-owners) before filing. The 180-day rule is simple but unforgiving. Decide the bonus before year end, not three months after, when the deduction is committed and the clock running. Sources - [CRA Interpretation Bulletin IT-109R2 — Unpaid Amounts (archived)](https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/it109r2/archived-unpaid-amounts.html) - [Canada Revenue Agency — Corporations](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/corporations.html) - [Canada Revenue Agency — Payroll](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/payroll.html) About this article **EverStone CPA** Prepared and reviewed by a CPA at EverStone CPA, serving businesses in BC, Alberta, Ontario and Manitoba. [About the firm →](https://www.everstonecpa.com/about) · [Send an enquiry →](https://www.everstonecpa.com/book-online) This article is general information, not tax advice for your specific situation. Tax rules and CRA administrative positions change — confirm anything that affects a decision with the CRA or with us first. ### Keep reading [Bonus vs dividend at year end →](https://www.everstonecpa.com/blog/bonus-vs-dividend-year-end-canada) [Year-end tax checklist →](https://www.everstonecpa.com/blog/year-end-tax-checklist-incorporated-owners) [Payroll remittances and your RP account →](https://www.everstonecpa.com/blog/payroll-remittances-canada-rp-account) FAQ ## Frequently asked questions about accrued Bonus and the 180-Day Rule in Canada **What is the 180-day rule for accrued bonuses?** Subsection 78(4) of the Income Tax Act says that if salary, wages or other remuneration owing at the end of a tax year is not paid within 180 days after that year end, the amount is treated as not having been an expense of that year. It becomes deductible instead in the year it is actually paid. **Does the 180-day clock run from year end or from the declaration date?** From the corporation’s tax year end, not from the date the bonus was declared or accrued in the books. A bonus accrued in month one of the year and a bonus accrued on the last day of the year share the same payment deadline. **Is a payment on day 180 late?** No. The CRA treats a payment on the 180th day as within the limit, so subsection 78(4) does not apply. Cutting it that fine is still risky: a late-clearing cheque or a rejected payroll run can push payment past the line. **What happens if the bonus is paid after 180 days?** The corporation loses the deduction in the accrual year and adds the amount back. It becomes deductible in the year the bonus is paid, so the deduction is deferred, not lost: more tax in the earlier year, less in the later one. **Does the rule apply to amounts owed to a shareholder-employee?** Yes. Subsection 78(4) applies whether or not the employer and the employee deal at arm’s length, so a bonus accrued to an owner-manager is caught in exactly the same way as a bonus accrued to an unrelated staff member. **Are vacation pay and retiring allowances treated the same way?** Reasonable vacation or holiday pay is excluded from the 180-day rule, as are deferred amounts under a salary deferral arrangement. The rule was extended to amounts in respect of a superannuation or pension benefit and to retiring allowances incurred after July 1990, so those are subject to the same payment deadline. ## Year-end coming up with a bonus in mind? Email us your year-end date and roughly what you plan to pay out. A CPA replies by email within one business day with the dates that matter and a fixed fee for the year-end and T2. [Get My Fixed Quote](https://www.everstonecpa.com/book-online)[Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) ## Have a question about this? Ask free through [the quick-question form](https://www.everstonecpa.com/quick-question); a CPA replies within one business day. Need more? A 45-minute **Advice Call** is $225 plus GST, credited to your first invoice if you become a client within 60 days. Want us to take it on? [Send an enquiry](https://www.everstonecpa.com/book-online). [Ask a Free Question](https://www.everstonecpa.com/quick-question) [Book a Paid Advice Call](https://www.everstonecpa.com/advice-call) Email info@everstonecpa.com ★★★★★ “…We switched to him last year for both our personal and small-business taxes — responsive, knowledgeable and quick.” Heather Powers · Google review **Run your own numbers with the free calculators:** [estimate your incorporation savings](https://www.everstonecpa.com/incorporation-calculator) · [run a paycheque calculation](https://www.everstonecpa.com/payroll-deduction-calculator) · [GST/HST calculator](https://www.everstonecpa.com/gst-hst-calculator) [← Accounts receivable — terms, follow-up, and writing one off properly](https://www.everstonecpa.com/blog/accounts-receivable-collection-small-business) [Advertising and promotion: what a Canadian business can actually deduct →](https://www.everstonecpa.com/blog/advertising-promotion-deductions-canada) More on this subject: [every T2 guide in one place](https://www.everstonecpa.com/corporate-tax-hub). More on this subject: [our year-end guides](https://www.everstonecpa.com/year-end-hub). --- Source: https://www.everstonecpa.com/blog/accrued-bonus-180-day-rule-canada Prices: https://www.everstonecpa.com/pricing · Contact: info@everstonecpa.com · https://www.everstonecpa.com/book-online